2011 Health Savings Accounts Limitations

Health Savings Accounts (HSAs) were created as a tax-favored framework to provide health care benefits. HSAs are targeted mainly at the self-employed, small business owners, and employees of small to medium-sized companies who do not have access to health insurance.

The tax benefits of HSAs are quite favorable and substantial. Eligible individuals can make tax deductible (as an adjustment to AGI) contributions into HSA accounts. The funds in the account may be invested (somewhat like an IRA), so there is an opportunity for growth. The earnings inside the HSA are free from federal income tax, and funds withdrawn to pay eligible health care costs are tax-free. The dual benefit of tax-deductible contributions into and tax-free withdrawals from HSAs (and existing Medical Savings Accounts) is truly unique. No other tax-deferred type of account currently exists that offers such a benefit.

The annual 2011 inflation-adjusted deduction for individual self-only coverage under a high-deductible plan is $3,050, unchanged from 2010. The comparable amount for family coverage is $6,150, also unchanged from 2010. For 2011, a high-deductible health plan is defined as a health plan with an annual deductible that is not less than $1,200 for self-coverage and $2,400 for family coverage, and the annual out-of-pocket expenses (including deductibles and copayments, but not premiums) must not exceed $5,950 for self-only coverage, or $11,900 for family coverage.